Question

The term 'Fund' as used in fund flow analysis means

• A. Cash only
• B. Current Assets
• C. Current Liability
• D. Excess of Current Assets over Current Liabilities

Hint:

Remember that 'Fund Flow' tracks the changes in working capital, not just cash flow. Cash Flow Statement focuses solely on the movement of cash and cash equivalents.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks for the specific meaning of the term 'Fund' in the context of Fund Flow Analysis, a financial statement that shows the movement of funds between two balance sheet dates.
Step 2: Key Concept:
In Fund Flow Analysis, the term 'Fund' does not refer to cash alone. Instead, it refers to the concept of Net Working Capital.
Step 3: Detailed Explanation:
Net Working Capital is a measure of a company's liquidity and operational efficiency. It is calculated as the difference between current assets and current liabilities.
\[ \text{Fund (Net Working Capital)} = \text{Current Assets} - \text{Current Liabilities} \] This value represents the excess of current assets over current liabilities, which is the capital available for day-to-day business operations. The Fund Flow Statement analyzes the reasons for the change in this net working capital over a period.
Step 4: Final Answer:
Therefore, the term 'Fund' as used in fund flow analysis means the excess of Current Assets over Current Liabilities. This corresponds to option (D).